Leaving Debt Mgmt Plan - question

[ghbut]

We have been on a debt management plan for several years through a non-profit company. It actually has really helped us - our credit scores are now in the excellent range and as of this month, we only have one debt to one creditor left. It's 9k, so it will take a little bit of time to pay off, but we are now in a different financial situation and have no problem paying this. We see no reason to continue on with the DMP. We're paying them $30/month (which was fine when we had lots of creditors) for nothing, really. We spoke to our creditor and they had no problems with us leaving the plan and paying them directly. They actually never even changed the interest rate, it was always low (9%; it's a credit union loan). However, when we talked to the company that does our DMP, they told us that leaving the plan early could affect our credit. They said that this is because the credit agencies won't receive a letter from them stating we completed the plan.

Does anyone know if this is a bunch of BS? Or is it true? I did a ton of research online and couldn't find anything about this. Any advice is welcome!

[snafu]

Sorry to learn you've been paying one of those slimy-type agencies $ 360. a year times however many years if they didn't even get you a lower interest rate. Have you checked your credit rating/FICO score, you can get it free from one of the 4 credit rating agencies. If your score is 'average' or better good. If it's still low, you need to work on moving it forward.

What do you think you got for $ 30. a month that you couldn't have sorted out for yourself? Do you use mint.com or some free service to help you follow your budget and manage your cash flow. You might look at some of the Discussion threads and join us on Saving Advice.

[Bob B.]

What snafu said, plus 9% int. IS a high interest rate. Depending on how fast you pay it off you can figure the debt will cost you between $50 and $65 per month in interest alone for the next several months.

If you make payments of about $790 per month each month, it will take one year to retire the debt, and you will have spent about $450 on interest.

Yes, drop the debt management company yesterday. Apply that $30 per month to the loan, plus a lot more.

How much do you plan to send to this loan each month?

Good Luck!

[doingitallwrong]

To address the original question, leaving the DMP won't affect your credit score at all -- FICO has stated they don't look at DMPs when calculating a credit score. It may show up on your credit report that you were in a DMP program and, since you didn't officially complete the program, it may stay on there for seven years -- but your debts are paid, except the one which you'll continue to pay, so I'm not sure how much that notation will actually affect your score. It should be obvious to anyone looking at the report that you completed the DMP for all but one debt, at the very least.

Have you pulled your credit report recently? Is the DMP noted on it? Does it say when it's due to fall off? Are you looking to establish a new trade line in the near future?

You can also add a statement to the report, so you could explain that you paid off everything but this one debt through the DMP and then decided to save the $360 a year. Some people don't advise adding statements to your report, though, because they stay on for 10 years and so eventually end up referencing a negative that isn't even on the report anymore.

[dczech09]

Just to add to what doingitallwrong has said...

If the DMP remark shows up on your credit report (very possible), it can potentially affect your ability to borrow in the future (not that you would necessarily want to). So if you were going to apply for a job, rent, or even a mortgage, it is possible that your credit report could get checked and the other party may see that you were in a DMP. That could potentially harm you if they take it the wrong way, so if it is on your report be sure to enter a statement reflecting reality so that people do not take it the wrong way.